Question

1 Find the names and university affiliations of the present members of the CEA.?

2 What are problems that governments may encounter in enacting and applying fiscal policy?
Explain the effectiveness of the recent U.S. fiscal policy

Answer 1

Answer 1 :

Names and university affiliations of the present members of the CEA

Members of the Council of Economic Advisers :

Jason Furman :

Jason Furman was confirmed by the Senate on August 1, 2013 as the 28th Chairman of the Council of Economic Advisers. In this role, he serves as President Obama’s chief economist and a Member of the Cabinet. Furman has served the President since the beginning of the Administration, previously holding the position of Principal Deputy Director of the National Economic Council and Assistant to the President. Immediately prior to the Administration, Furman was Economic Policy Director for the President’s campaign in 2008 and a member of the Presidential Transition Team.

Furman held a variety of posts in public policy and research before his work with President Obama. In public policy, Furman worked at both the Council of Economic Advisers and National Economic Council during the Clinton administration and also at the World Bank. In research, Furman was a Senior Fellow at the Brookings Institution and the Center on Budget and Policy Priorities and also has served in visiting positions at various universities, including NYU’s Wagner Graduate School of Public Policy. Furman has conducted research in a wide range of areas, such as fiscal policy, tax policy, health economics, Social Security, and domestic and international macroeconomics. In addition to numerous articles in scholarly journals and periodicals, Furman is the editor of two books on economic policy. Furman holds a Ph.D. in economics from Harvard University.

Sandra Black :

Sandra Black is a member of the Council of Economic Advisers. She is on leave from the University of Texas, Austin where she holds the Audre and Bernard Rapoport Centennial Chair in Economics and Public Affairs and is a Professor of Economics. Dr. Black has worked as an Economist at the Federal Reserve Bank of New York, and as an Assistant, Associate, and ultimately Professor in the Department of Economics at UCLA before arriving at the University of Texas, Austin in 2010.

She was previously the Editor of the Journal of Human Resources, a Research Associate at the National Bureau of Economic Research, and a Research Affiliate at the Institute for the Study of Labor. Dr. Black’s research focuses on the role of early life experiences on the long-run outcomes of children, as well as issues of gender and discrimination. She received her B.A. from the University of California, Berkeley and her Ph.D. in economics from Harvard University.

Jay Shambaugh :

Jay Shambaugh is a member of the Council of Economic Advisers. He is on leave from George Washington University where he is a Professor of Economics and International Affairs. Dr. Shambaugh had also served as a Faculty Research Fellow and Research Associate at the National Bureau of Economic Research since 2007. He previously held positions within the Council of Economic Advisers between 2009 and 2011, first as a Senior Economist from 2009 to 2010 and then Chief Economist from 2010 to 2011. Dr. Shambaugh has held several teaching positions within economic departments across the country as an Associate Professor with tenure at the George Washington University from 2012 to 2013, a Visiting Associate Professor at Georgetown University’s McDonough School of Business from 2011 to 2012, and an Assistant Professor and then Associate Professor from 2002 to 2011 at Dartmouth College.

From 2011 to 2013, Dr. Shambaugh was also a Visiting Scholar at the International Monetary Fund. He was a Visiting Fellow at the Institute of International Integration Studies at Trinity College, Dublin from 2005 to 2006. Dr. Shambaugh received a B.A. from Yale, an M.A.L.D. from The Fletcher School at Tufts University, and a Ph.D. in Economics from the University of California, Berkeley.

Answer 2 :

Problems that governments may encounter in enacting and applying fiscal policy :

Fiscal Policy is the use of Government spending and taxation levels to influence the level of economic activity. In theory, fiscal policy can be used to prevent inflation and avoid recession. But, in practice, there are many limitations of using fiscal policy.

Evaluation / Criticism of Fiscal Policy :

1. Disincentives of Tax Cuts. Increasing taxes to reduce AD may cause disincentives to work, if this occurs, there will be a fall in productivity and AS could fall.
   • However higher taxes do not necessarily reduce incentives to work if the income effect dominates the substitution effect.

1. Side effects on public spending. Reduced government spending (G) to decrease inflationary pressure could adversely affect public services such as public transport and education causing market failure and social inefficiency.

1. Poor information. Fiscal policy will suffer if the government has poor information. E.g. If the government believes there is going to be a recession, they will increase AD, however, if this forecast was wrong and the economy grew too fast, the government action would cause inflation.

1. Time lags. If the government plans to increase spending – this can take a long time to filter into the economy, and it may be too late. Spending plans are only set once a year. There is also a delay in implementing any changes to spending patterns.

1. Budget Deficit. Expansionary fiscal policy (cutting taxes and increasing G) will cause an increase in the budget deficit which has many adverse effects. A higher budget deficit will require higher taxes in the future and may cause crowding out.

1. Other components of AD. If the government uses fiscal policy, its effectiveness will also depend upon the other components of AD, for example, if consumer confidence is very low, reducing taxes may not lead to an increase in consumer spending.

1. Depends on the Multiplier effect. Any change in injections may be increased by the multiplier effect, therefore the size of the multiplier will be significant. If consumers save any extra income, the multiplier effect will be low and fiscal policy less effective.

1. Crowding Out. Expansionary fiscal policy of increased government spending (G) to increase AD may cause “Crowding out” Crowding out occurs when increased government spending results in a decrease in the size of the private sector.

– For example, if the government increase spending it will have to increase taxes or sell bonds and borrow money, both methods reduce private consumption and investment. If this occurs, AD will not increase or increase only very slowly.

– Also classical economists argue that the government is more inefficient in spending money than the private sector, therefore, there will be a decline in economic welfare

– Increased government borrowing can also put upward pressure on interest rates. To borrow more money the interest rate on bonds may have to rise, causing slower growth in the rest of the economy.

9 . Real business cycle critique

The real business cycle argues that macroeconomic fluctuations are due to changes in technological progress and supply-side shocks. Therefore, using demand-side policy to influence economic growth fails to address the issue and just makes the situation worse.